On Friday, my grandmother made a comment about kashering a knife by sticking it in a potted plant (with very loose soil), something which will not kasher anything. What is the origin of this bubbe-meiße (old-wives' tale)?

The halacha is, if you treif up a knife you can't just boil it in water like you would do any other kind of silverware, you have to stick it into the ground (any firm soil) ten times. This is b/c a knife is used for cutting which means you use more pressure with it than other silverware, and therefore in order to kasher it you have to also use pressure and stick it in the ground.
It follows the principle of "k'boiloi kach poltoi" - however the taste got absorbed into the vessel, you have to use the same method to remove it.

Forgot to mention that this only applies to knives that are made of one piece. Not the ones with a plastic handle which AFAIK CANNOT be kashered. Please correct me if I'm wrong

my mistake....I don't know if it's a lechatchila, but yes, the knife can be plunged in like 10x. My husband was told that nowadays they suggest steel wool because of it's abrasiveness.

The rabbi who teaches a halacha class at our shul mentioned this. He said it was done to kasher a knife if you had only one knife to use for both milchig and fleishig, and no other way to kasher it. It had to be driven into hard ground several times in order to create friction to generate heat.

None of the posts on that website provides a source.

The Star-k website has the following statement:

"Sticking utensils in soil is generally not an effective way of kashering. (There is only one case where it is effective and so that is why some think that this method works.)"

[but I can't find anywhere on their website where they detail the one case]

"However, when a knife or other utensil is used to cut, chop, grate, or grind a non-kosher food, a residue of that non-kosher food remains on the knife even after the knife is “cleaned”.1 This principle, known as duchka d’sakinah, is discussed in the Gemara and Shulchan Aruch,2 where it states that the knife may only be used for kosher food if it either undergoes a process known as נעיצה or is filed down (i.e. sharpened). נעיצה involves thrusting the knife into semi-solid earth 10 times, and it is generally understood that this process is effective, because the earth serves as an abrasive cleaner for the knife’s blade.

The Simlah Chadasha (10 "יתר דיני סכין"), discusses different ways to mess up a knife and how to fix them. If someone slaughters a טריפה1 (an animal that has certain physical deformities, such that it would not live 12 months), the knife must be cleaned (via rinsing הדחה or rubbing קינוח) from the fats of the טריפה.

But, if one killed three טריפות in a row, without a good שחיטה or הדחה\קינוח in the middle, then that knife needs נעיצה in hard ground to be kashered (10:13). הדחה\קינוח do not help for this case.
If there were three in a row with כשרות in between, then נעיצה is required as a לכתחילה (see above).
One טריפה by itself does not require נעיצה, because the שמנונית איסור (fatty leftovers of forbidden food [= טריפה]) has not really gotten stuck to the knife from just one time ("משום דלא אידבד איסורא בהאי סכין וכו," there 12) -- that only happens on three.
This case is the only case that נעיצה is needed, and, indeed, helps. Read through סימן י there, and this procedure is mentioned only by the knife that was used for three טריפות (as in 13 and 92), or to say that it doesn't work (5, 7, and 11; maybe more).

Sticking it into the ground ten times means sticking it into the ground ten times (there, 7). This does not mean sticking it into the ground nine times, nor does it mean sticking it into the ground once and leaving it there (leaving it in the ground does nothing -- we need abrasive force to scrape hardened [invisible to the naked eye] fat from the knife).
The ground should be hard (5), virgin soil that was not disturbed.

1 While it is not explicit in the text of the Simla Chadasha, I asked my rebbi and he told me that the same would also apply to neveila as well. [If you can source this to another ספר הלכה, please leave a comment below!]2 That is a case where one used a knife that was used (for a long time) by a non-Jewish slaughterer -- one may assume that it was used for many טריפות (and, לכאורה, also נבילות as per the above footnote) and thus requires נעיצה.

It's called נעיצה, and all the sources I've seen have specified that the ground must be hard when you thrust the knife in. I don't know the exact origin, and this is not an exhaustive list, but it is mentioned by the Rambam (maachalot asurot 6:20 and 17:7), and followed by the Shulchan aruch (YD 121:7, YD 10:1, ), and the Rema (YD 89:4, YD 69:20) in certain circumstances. In other words, it's actually not totally a bubba-meisa, although in practice it is rare.

My guess on why it's so uncommon today (and this paragraph is purely speculation so please treat it as such), is that in times when running water was harder to obtain neitzah was relied upon more because the ground was more convenient than a well. Nowadays with the invention of indoor plumbing and faucets, water is easier to obtain so people use boiling water in cases where either neitzah or boiling water is an option.

The source I quoted in my answer was very clear on the point that when you need נעיצה, that הדחה קינוח OR הגעלה would not work.......
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ShokhetJul 8 '14 at 22:05

re:¶2 I suspect that there may also be an element of uselessness, as @Danno pointed out, it only works on items which have one-piece construction.
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Noach mi FrankfurtJul 9 '14 at 0:13

Also, knives are cheap, so you can have dedicated ones for different purposes.
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Double AA♦Jul 9 '14 at 2:49

@Shokhet - I assume you're referring to my speculation in part 2. I realize there are some situations in which either will suffice, and some in which only one or the other is needed. That's why I added "in cases where either neitzah or boiling water is an option" to the end. If in all the cases where hadacha was acceptable people started doing hadacha, that would lower the overall number of times people saw neitzah, and make it rarer. I didn't say it was never done, it just seems to be fairly rare and many (like the questioner) haven't heard of it.
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Bachrach44Jul 9 '14 at 7:02

@Bachrach44 Which cases are those, that "either will suffice"? [not attacking, just curious]
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ShokhetJul 9 '14 at 13:05